STRATEGIC MANAGEMENT & POLICY COMM 4005 / SP1

MODULE 3 JETBLUE AIRWAYS: A CADRE OF NEW MANAGERS TAKES CONTROL

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Question 1 David Neelmans original strategic vision was to bring humanity back to air travel through combing low fares of a discount airline carrier with the comforts of a small cozy den in peoples homes.

Davids strategic vision is a good one, but the strategic objectives, strategy development, and implementation and execution should be modified to address both the internal environment and external environment, such as; current technological, economic and industry conditions. The new executive leadership should be looking at ways to adjust and improve upon the strategyexecuting process in order to improve JetBlues bottom line. This could be accomplished using the most powerful and widely used tool for systematically diagnosing the principal competitive pressures in a market and assessing the strength and importance of each of the 5 forces model of competition (Porters competitive forces).

Question 2 The key elements of JetBlues strategy in 2008 are as follows; Re-evaluate the ways the company was using its assets Reduce capacity and cut costs Raise fares and grow in select markets Offer improved services for corporations and business travellers Form strategic partnerships Increase ancillary revenues

JetBlue has chosen to attract customers in sufficient volume to earn profits through the following; Offering customers low prices on air fares Introduction of refundable fares and offered discounts to corporate travellers Partnership with Oasis Day Spa to offer various spa services to travellers Partnership with Google Maps so that flights could be tracked live on the airlines website Partnership with other airlines to make it easier for travellers to connect to more places Provide travellers with access to a recreational area for children Provide additional flight entertainment such as satellite radio and movie channels Create comfortable flying conditions such as more comfortable seats (leather seating, additional leg room) Offer customers more available flight destinations and more efficient routes

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JetBlue offers its customers value by reducing overhead costs, such as saving on travel agent commissions by promoting online bookings, which translate into lower fares. JetBlue paid special attention to the little details that customers found special and acted on it. An example would be the various partnerships JetBlue formed with other service providers to offer special perks such as massages, manicures, inflight entertainment, etc. Lastly, JetBlue offers its customers value through its Passenger Bill of Rights which informs the customers what they can expect from JetBlue.

Question 3 JetBlues functional area strategies are consistent with its overall strategic approach. Functional area of finance: - JetBlue increased its fares to improve its bottom line - JetBlue reduced service at selected cities that were not operating at full capacity - JetBlue sold some of its fleet which were not being used at full capacity in order to generate cash flow - JetBlue delayed the delivery of new airplanes in order to post-pone payment - JetBlue introduced various charges to increase ancillary revenues Functional area of sales and marketing: - JetBlue introduced electronic ticketing and allowed customer to conveniently pay using PayPal - JetBlue offered various services to customers that were not offered by other airlines (such as massages, manicures, yoga cards, etc.) - JetBlue created the Customers Bill of Rights Functional area of human resources: - JetBlue offered training at its own university - JetBlue only hired those that they felt were qualified and would work well in teams - JetBlue pays their employees less than the competitors but they supplement the wages with benefits such as health care and profit-sharing - JetBlue determined its core values which guided the employees in their decision-making process Functional area of operations: - JetBlue also does not compete where there is stiff competition, or the volume is too high (i.e Atlanta Hartsfield Airport due to the competition, and also flies to Long Beach due to the LAX volume) - The use of various planes (E-190s and A-320 for shorter and longer flights respectively) which saves on fuels costs

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Question 4 Factors that are driving change in the industry include: A slowing economy causing cutbacks on travel for both business and pleasure Changing technology as more services and records are switching to electronic methods to replace paper Skyrocketing jet fuel costs Aging planes are inefficient in fuel consumption, thus driving the need for airlines to update their fleets Increase competition from new entrants due to increased customer demand Increased labour costs due to a possible shortage of pilots An increasing Crack spread between the cost of a barrel of jet fuel and crude oil Declining investor confidence in the value airline industry The strong presence of unions and their role in representing the airlines staff

The listed factors would hinder the attractiveness of the industry. Smaller airlines may be forced to merge with larger ones in order to stay alive. Airlines will have to look for different ways of attracting customers to their airline, possibly using a strategy of differentiation. Increased marketing efforts may be required to increase customer base and convince land travellers that air travel is more efficient, pleasurable and not costly for the value they receive. Airlines will have to cut back on unnecessary expenses as much as possible. Pilot salaries will likely increase due to the possible shortage and this will be one area that the airlines cannot afford to cut back. The airlines will face pressure to raise their own working capital if investors are hesitant to invest in the airline industry. This will also increase the cost of capital for airlines.

Question 5 The key success factors in the airline industry are; Cost control Although JetBlue is still competitive in its one-way fares, its operating costs are increasing. The largest increase was aircraft fuel and it is recommended that JetBlue hedge more of its fuel costs as the benefits of doing so can be seen with Southwest Airlines. Maximizing revenue through competitive and innovative pricing strategy to attract and maintain a customer base is critical for success. Cost management, notably fuel procurement and price hedging during volatile periods, and innovations such as adding/adopting new technology to fuel conservation are great methods of cost control. JetBlue began to grow selectively in certain markets and to slowly raise its fares. It explored ancillary revenue opportunities and reduced capacities to cut costs. Matching supply with demand - The scheduling and assigning of the various aircrafts to specific destinations and at specific times of the year is important so that aircraft utilization is maximized.

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Financial Management - Net-unit revenue is the measure of profitability, representing all revenues minus all costs divided by the total seats flown. Successful management of this key indicator enables airlines to tap investment for growth. Increasing, retaining and satisfying travellers JetBlues Customer Bill of Rights helps travellers to know their options when unexpected delays, cancellations or other inconveniences occur. There is room for improvement with JetBlues results with on-time arrival, mishandled baggage, and passenger complaints. The actual products that airlines sell are seating space, aircraft type, and various classes of service and ease of booking. Airlines must be competitive in these areas for success. Promotions, particularly those targeted to frequent high-revenue travelers, create loyalty and repeat business. JetBlue provided a comfortable trip and an easy booking system. JetBlue tried to appeal to business travelers through introduction of refundable fares and enabled corporate meeting planners to receive meeting-specific discounts and a complimentary travel certificate for every 40 customers booked to the same event destination. It entered into a five-year agreement with Expedia Inc. to reach leisure travelers, managed business travelers, and unmanaged business travelers. JetBlue was well positioned with a strong and expanding route network. Employing a well-trained and experienced workforce JetBlue currently is paying lower than the going market rate for airline employees in all positions, but it makes up for it by offering various other incentives such as health benefits. Given the expected shortage of pilots, JetBlue may have to increase the Pilots salary along with offering the extra incentives. Providing training programs that focus on front-line communicative skills with travellers and internal employee-management problem solving with customer-focused continuous-improvement objectives are essential ingredients. Employing well-trained staff can make a world of difference at times of expected dilemmas.

Question 6 JetBlues strategies for 2008 do seem well-matched to industry conditions and the companys internal situation. JetBlue will make better use of its assets by delaying the delivery of new aircrafts and by getting rid of the extra aircrafts that were not being used to their full extent. Also, cutting back on services to areas that were not utilizing full capacity of the aircrafts and increasing in other markets where demand is much higher, will help as another cost-cutting measure. It is quite obvious that the airline industry cannot provide airfares at the same rate as in the past given the increase in jet fuel costs. Therefore, raising the current fares is a positive step in recouping some of the increasing operating costs. Forming strategic partnerships may allow JetBlue to offer services to travellers that other airlines cannot, thereby increasing and maintaining its customer base. Ancillary revenues are helpful in offsetting some of the increasing operating costs and therefore, instilling charges for various items or services can be beneficial.

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Some recommendations I would make to JetBlue would be as follows; Increase spending on advertising, show the public why they should choose JetBlue over any other airline Increase the hedging on jet fuel as it has been shown to be very effective in the case of Southwest Airlines. Increase pilot wages in order to keep the best pilots on staff, especially in times of pilot shortages Use newer (non-propeller) modeled aircrafts (quieter trips) As safety is JetBlues number one priority, there should be programs in place to monitor and control staff stress levels. Based on the findings, staff workload and time off to re-coup may have to be adjusted to ensure the safety of both staff members and travellers. Pursue partnerships such as with Aer Lingus to increase working capital Leveraging the new terminal 5 airport by selling capacity to other non-rivals (International carriers) that could make sure of idle capacity. This would help improve working capital as well. Focus on increasing a web presence, as the trend now is for carriers to make more of their sales in-house by using online tools. There was a major increase in % of sales done online in every year, but it slipped in 2007. Perhaps website enhancements and marketing can add more online revenue which further reduces commission costs. Focus on reducing debt load. One of the larger issues for JetBlue is that it is overly leveraged in comparison to its rivals and that could be a problem down the road. Cash is not a significant issue right now, but high interest costs, and high leverage can lead to further issues down the road and vulnerabilities to takeover. Some of the moves such as; deferring new airplanes, selling off some older airplanes, and other cost cutting measures, will help in this regard but debt reduction should be a priority.